LONDON, Oct 5 (Reuters) - The London Metal Exchange is preparing plans that will allow it to clamp down swiftly on cobalt brands on its approved list thought to be tainted by human rights abuses, the exchange’s chief executive Matt Chamberlain said.

Cobalt is a key ingredient in the batteries that power electric vehicles, a fast-growing sector in the auto industry, and in metal alloys used to make jet engines.

It has been singled out in the LME’s proposal to embed responsible sourcing principles into metal brands deliverable against its contracts, as most of the world’s supply comes from the Democratic Republic of Congo, often from artisanal mines where human rights abuses are rife.

Concerns that some providers of cobalt to the exchange may have used child labour have helped create a discount for the LME’s cobalt contract against prices gathered by trade publication Metal Bulletin, sources said.

The LME is proposing suspending brands trading at a significant discount on the grounds that they may be seen as tainted.

“The way we would look at it is whether the brand people are concerned about is trading at a much lower value than other LME-listed brands,” Chamberlain said in an interview ahead of LME Week, an annual gathering of the metal industry in London.

Chamberlain added that the proposal is to identify brands trading at a discount of 2 percent or more.

“We would give people 30 days before we delist or suspend a brand to tell us why we’ve got it wrong, that the brand isn’t trading at a discount and the best way to demonstrate that is to show us their physical transaction records.”

LME cobalt is currently around $63,000 a tonne. The contract’s discount to Metal Bulletin prices is currently around $13,000 a tonne, the sources said.

Auditing to ensure compliance with responsible sourcing principles for cobalt and tin, also mined artisanally in the DRC, must be completed by the end of 2020.

The transitional proposal under discussion would come into effect by the third quarter of 2019.

“The market clearly has concerns about some cobalt brands and people would quite rightly ask why the LME is waiting two years to do anything about it,” Chamberlain said.

Worries that metal produced by Yantai Cash, physically deliverable against the exchange’s cobalt contract, could have been mined in the DRC by children in artisanal mines surfaced more than a year ago.

Nanjing Hanrui Cobalt, the main provider of raw material to LME-approved cobalt supplier Yantai Cash, said last December some of its cobalt came from artisanal mines in Congo and it couldn’t rule out child labour may have been used.

The LME’s physically deliverable cobalt contract was launched in 2010, and it will add a cash-settled contract in 2019. Referring to the longstanding problem of discounts, cobalt traders said the LME needs to resolve the issue.

“That needs to happen before the LME launches the cash-settled contract next year, otherwise there could be a price differential against the physically deliverable contract,” one cobalt trader said.

The proposal also includes other metals such as copper, aluminium and zinc where auditing would have to be completed by the end of 2021.

The metal industry and market participants have until the end of November to give initial feedback. A formal consultation will take place early in 2019. (Reporting by Pratima Desai; Editing by Veronica Brown and Jan Harvey)